The Competition-Killing Sprint, T-Mobile Merger Nobody Asked For Is Back On The Menu

from the M&A-mania dept

When last we checked in with T-Mobile and Sprint's longstanding M&A dance of dysfunction, the deal had been scuttled after Sprint was unwilling to give up control post-merger. But something in the dynamic between the two companies (more specifically T-Mobile's German owner Deutsche Telekom and Sprint's Japanese owner Softbank) appears to have shifted, and the deal nobody actually asked for appears to be back on the menu (annoying Wall Street Journal paywall warning):

"Sprint and T-Mobile have rekindled merger talks, people familiar with the matter said, as the wireless rivals explore a combination for the third time in four years. The latest discussions come just five months after a previous courtship collapsed largely over who would control the combined firm. The talks also come in the midst of an antitrust fight between the U.S. government and AT&T Inc.

T-Mobile and its more consumer friendly brand identity have widely been seen as a good thing for the industry (even though T-Mobile's brand schtick doesn't extend to things like net neutrality). The company's "innovative" focus on actually listening to consumers once in a while has resulted in a lot of notable improvements in the industry as other carriers play copycat, including more reasonable roaming costs, the elimination of long-term contracts, and a modest reduction in the tendency to nickel and dime consumers to death with obnoxious hidden fees.

Sprint, meanwhile, has languished in a sort of brand identity hell, with most of its efforts to counter T-Mobile and resonate with consumers going nowhere. While improving slowly, Sprint pretty consistently rates last in terms of overall network quality and performance among the big four carriers, and it seems like the company has been stuck for years promising the network everybody actually wants is just around the next corner. Meanwhile despite a wealthy sugar daddy in Softbank, Sprint's debt load continues to hamstring the company's efforts at improvement.

The argument has long been that combining the two companies will create a more effective competitor for AT&T and Verizon. But that's generally not how competition, or the telecom sector, works. Reducing the total number of competitors almost always results in less incentive to compete. Even with T-Mobile's disruptive habits, the wireless sector already doesn't really try too hard to seriously compete on price. And part of the reason Sprint and T-Mobile have struggled is AT&T and Verizon's monopoly dominance of fiber-based cellular backhaul, something that won't change just because of M&A mania.

As they hunt for possible regulatory approval, Sprint and T-Mobile have previously tried to play on Donald Trump's facts-optional job creation claims, insisting the deal will somehow, magically, be a boon for employment. But analysts that rely on actual facts and hard data (remember them?) have argued the deal will be mammoth job killer:

"Together, the companies reported employing 78,000 in their most recent disclosures. Sprint, based in suburban Kansas City, accounts for 28,000 of those, and T-Mobile for 50,000. Merging the companies, said a report by Jonathan Chaplin of New Street Research, could eliminate “approximately 30,000 American jobs” — which is more than Sprint employs.

Reader Comments

Sprint, meanwhile, has languished in a sort of brand identity hell, with most of its efforts to counter T-Mobile and resonate with consumers going nowhere.

Then why, for the sake of this argument, can we still refer to them as 'competition'? And do we need 4 national carriers for there to be true competition in the marketplace?

Last year, Sprint gave away free service for a whole year, and not only did they need to extend the length of the promotion - twice - they actually ended up losing subscribers.

If what Spring does in the marketplace doesn't move the needle at all, then aren't consumers better off with a more competitive combined SprinT-Mobile that increases the quality of the MVNOs at the same time?

Competition is good as long as they're able to compete but Sprint is the NY Jets of mobile carriers.

Re:

"If what Spring does in the marketplace doesn't move the needle at all, then aren't consumers better off with a more competitive combined SprinT-Mobile that increases the quality of the MVNOs at the same time?"

The first problem appears to be that Sprint needs to move a needle. Why does it need to move a needle to be viable? Has the company become insolvent?

Another problem appears that if Sprint is not moving the needle that consumers are going to benefit from a consolidation in a merger. History shows that mergers more often than not work against the economic environment. Fewer jobs often result, lower quality of product due to a competitor now being gone or absorbed, and naturally more wealth accumulation in less instead of more population.

"Competition is good as long as they're able to compete..."

Yet your logic implies that if they cannot compete to criteria that you are not making clear, then they should be removed from competing at all.

"Then why, for the sake of this argument, can we still refer to them as 'competition'?"

To answer your question... how can you NOT refer to them as competition? They are still competing but as long as they have to worry about one stealing the others customers then business logic would suggest that it be dealt with. A merger is a good way to deal with it... because when you don't have to worry about that competition... you don't have to worry about your customers... because you are the only game in town.

Re:

We need 4 carriers because more competition benefits consumers. If it wasn't for T-Mobile, the wireless industry may still be running off of the idea of subsidised devices and two-year contracts, thus hiding the TRUE cost of mobile devices from the public. Because of T-Mobile, the whole industry has shifted. Now, wireless consumers are more informed when it comes to the cost of their devices versus their service cost instead of remaining in the dark. This allows consumers to determine if they want to upgrade continuously with new phone payments, or to keep their devices longer and enjoy a lower monthly bill. It also allows them to make informed decisions as to which carrier offers the best value for them. If T-Mobile had merged with Sprint earlier on, this may not have happened.

Other changes in the industry have been made due to T-Mobile's lead, like unlimited data, unlimited voice and messaging, and no data overage costs. Do you really think that Verizon and AT&T would have introduced those options if someone else had not done it first? To put it succinctly, T-Mobile has caused a paradigm shift in wireless that has simplified cellular offerings across the board.

Now just imagine if we used the "Do we need a 4th carrier" logic in other areas, like ISP options. Has the Time Warner/Brighthouse/Charter merger resulted in better prices and services? Hell no! If anything, it has caused an increase in cable internet prices, as DSL is still not a viable competitor, and an increased "fuck you" attitude coming from cable ISP providers.

Finally, if Sprint is unable to remain viable based on the merits (or the lack thereof) of their network and pricing, do they really deserve to be around, or thrown a lifeline by T-Mobile or another carrier in the form of an M/A? The obvious answer is no. Softbank has the resources to make Sprint better, if they choose to do so. The plain fact is that Softbank has not genuinely expressed that interest, and until they do so, Sprint will continue to flounder.

Re: Re:

> We need 4 carriers because more competition benefits consumers.

Well, this street corner has 8 burrito joints, but what it really needs is a *9th* burrito joint to be truly competitive.

If Sprint is literally giving away service, and no one particularly cares, then what sort of competition are they offering? A place of last resort to go to if the other 3 options and the MVNOs piss you off? They are persona non grata.

I'm not seeing the problem

With a poor network and poor service, it sounds like Sprint isn't much of a competitor now. If the losses continue, SoftBank isn't going to keep putting good money after bad. If they let Sprint go bankrupt, their spectrum will likely be auctioned off to the highest bidder, which might very well be, in large part, AT&T and Verizon.

If Sprint's going to go under, getting bought by TMo intact seems to be the best of the available options.

Re: Errr... wouldn't stopping the merger be interference?

"Wouldn't prohibiting the merger kind of be the definition of the "government meddling with the market"?"

You are correct, I should have said meddle like this. I am okay with Government creating regulations to prevent monopolies and to go after anti-trust issues, but that is about it. I do not want the government to meddle with the economy in ways that allows it to confer a natural monopoly to the highest bidder like they did with wireless spectrum's. They should be free period and managed by government to prevent them from "owning" something that belongs to the people as public infrastructure which "air" happens to be a part of.

"Anybody can look at Sprint's cashflow statement and see that there's no plausible way for them to keep going, absent Softbank continuing to pour in cash for no good reason, and with no end in sight."

Sure, no problem with that view, but this still is no call for government involvement. This all stinks. There is no end to the ways that creative accounting can make things look bad or good and even with all of the compliance laws out there many ways to cook the books still legally exist.

At this point, Softbank is responsible for either helping destroy Sprint or Fund a dud, it should not be allowed to save it's own skin by giving it an out through a merger. This all sinks to too big to fail government welfare for business exceptions with the only difference being, instead of the tax payers directly supporting the business through bailouts, the tax payers indirectly pay for having lost competition in the market place through "Government Exception".

The government would not give a shit about you making this mistake for yourself. It should allow Softbank to fail because they made the mistake of getting involved with Sprint.

Sure we may already be too far down this rabbit hole to recover, but there is no reason to go balls deep into a rotting snatch just because you already have the tip in!

Try and say what you mean.

How is letting two companies do something they've expressed a desire to do "meddling" or "government involvement"? It's kind of the exact opposite. I still don't follow this logic. Stop using terms that mean the exact opposite of what you are trying to say, and your comments will be a lot easier to understand.

And for somebody railing against "government welfare", I'm puzzled by your position that spectrum should be given away for free. It's a limited resource with a lot of value, but the companies that profit handsomely from it shouldn't have to pay for it? Really?

A company that's made an acquisition that didn't pan out shouldn't be allowed to cut their losses? That's the sort of thing most people are referring to when they think of "meddling".

And, again, if Sprint just goes under, that spectrum will be up for grabs, and we can certainly anticipate that AT&T and Verizon will get some of it. (Not to mention the service disruption and job losses that would occur.)

Killing jobs?

If the companies kill jobs by merging, is that really a bad thing? If a service could be provided by 48,000 people, why is it desirable that instead 78,000 people must work to provide that service? Isn't that just inefficient?

Re: Killing jobs?

Unfortunately, it's more often that they expect the surviving 48000 to do the work of 78000 than the other way around. They take the money "saved" from eliminating jobs and pay themselves handsome bonuses for a job "well done" while the remaining workers have to work harder than ever for the same pay (or less).

Bode is hilarious

Re: Bode is hilarious

I find it entertaining that you, who argues for less regulation and more competition by breaking up of ISP monopolies (which is in itself regulation), are making fun of the author of an article that argues that two ISPs (who are already considered to be monopolies) merging would create an even bigger monopoly and be bad for competition.

Re: Bode is hilarious

Bode claims: "And part of the reason Sprint and T-Mobile have struggled is AT&T and Verizon's monopoly dominance of fiber-based cellular backhaul, something that won't change just because of M&A mania."

This is a big pile of hooey, of course. Sprint has a big pile of fiber assets that it's not using because it has so few customers and so little ability to invest in the wireless edge. TMUS has customers but its fiber backhaul is weak.

So a combination of the two companies produces a genuine rival to the two companies that currently have 80% of the market. Bode's math - 4 > 3 - misses the fact that three firms with a third of the market each is much more competitive than the status quo.

Re: Re: Bode is hilarious

TMUS has customers but its fiber backhaul is weak.

What does that mean exactly? Because by accounts, T-Mobile's backhaul is 95% fiber. Additionally, there are reports that state the quality of T-Mobile's fiber backhaul is a huge advantage, even above ATT and Verizon.

Additionally, at ~58 million subscribers for Sprint and ~72 million subscribers for T-Mobile, there isn't really that much difference in subscribers between the two.

Bode's math - 4 > 3 - misses the fact that three firms with a third of the market each is much more competitive than the status quo.

Or you know what's better? Split ATT and Verizon up so instead of 4 competitors, you have a minimum of 6 and no monopolies at all. Creating a third monopoly to compete with two other monopolies is not a solution, it's just adding to the problem and removing even more choice and competition from the end user.